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TMI Blog2018 (4) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... e are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the income of each beneficiary. Tax on the share of each beneficiary will have to be separately calculated as if it formed a part of the beneficiary’s income. Tax payable by the Trust will be the sum total of the tax calculated on the share of each beneficiary. With these directions, we set aside the reassessment order to the file of the Assessing Officer for reframing the assessment. - Decided in favour of assessee for statistical purposes.. - ITA No.193/Coch/2016 - - - Dated:- 19-4-2018 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Sri.P.K.Sasidharan, CA For The Respondent : Smt.Swapna Nanu Ambat, Adl.CIT-DR ORDER Per George George K., JM This appeal at the instance of the assessee is directed against the order of the Commissioner of Income-tax dated 29.02.2015. The relevant assessment year is 2007-2008. 2. The grounds raised read as follows:- 1. The order of the Commissioner of Income Tax (Appeals) is bad in law and opposed to facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of the beneficiaries though definite in the trust, they are not the co-owners of the trust property. Hence it was concluded by the A.O. that the rental income is to be assessed in the hands of the assessee-trust at the maximum marginal rate. The relevant observation of the A.O. while completing the reassessment, reads as follows:- As per section 26, where property ..... .is owned by two or more persons and their respective shares are definite and ascertainable such persons shall not in respect of such property be assessed as an Association of Persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. Here the beneficiaries shares are definite but they are not co-owners. The property is owned by the Trust. The authorized representative did not raise specific contentions against this observation but stated that some of the beneficiaries have yet not chosen to file their returns for the assessment year 2007-08 and hence no refund has been claimed by them. 4. Aggrieved by the order of reassessment, the assessee preferred an appeal to the first appellate authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s if the beneficiaries were assessed directly. It was further submitted by the learned AR that by virtue of clause (iv) of section 161(1), the Assessing Officer ought to have worked out the share of each beneficiaries and separate assessments ought to have been made on each beneficiaries in the hands of the trustees. As regards the reopening of the assessment, it was submitted that the present stand of the Assessing Officer is only a mere change of opinion without any legal backing and hence the reopening cannot be held to be valid. It was submitted that the beneficiaries are the co-owners of the property and the assessment was completed u/s 143(3) in accordance with the provisions of section 26 of the I.T.Act. Therefore, there was no escapement of income, warranting issuance of notice u/s 148 of the I.T.Act. 5.2 The learned Departmental Representative present supported the order of the Assessing Officer and the CIT(A). 6. We have heard the rival submissions and perused the material on record. The assessment originally completed on 22.10.2009 was reopened as per the notice issued u/s 148 of the I.T.Act on 28.03.2012. The reasoning for issuing notice u/s 148 of the I.T.Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is only the beneficiaries who are the joint owners of the assets of the trust. 6.2 As per section 3 of Indian Trust Act 1882, the definition of the trust is as follows:- A Trust is an obligation annexed to the ownership of the property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner Trivia: this definition has never been amended since its inception. 6.3 From the above definition it is clear that the beneficiaries are the owners of the property of the trust and the trustees have only the duty and responsibility to manage the same in accordance with the power granted to the trustees by the Trust deed. When the beneficiaries become the joint owners' section 26 of the Income Tax Act, comes into play and mandates the assessment of the beneficiaries shares in their respective hands. The Hon ble Bombay High Court in the case of Bhavna Nalinkant Nanavati v. CIT [(2002) 255 ITR 529 (Bom.)], after referring to section 3 of the Trust Act held that beneficiaries are the real / actual owner of the trust property. The relevant findings of the Hon ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of providing buildings or other accommodation in which to carry on the business of the State or for providing residences for its officers and other employees. It is equally difficult for us to think that the vacant land held, that is, owned or possessed as owner by any other bank specified in section 19 of the Act is not its owner with all the rights of ownership including the right of disposal vested in it. Therefore, when the bank holds the trust properties in due course of executing and administering the trust for the benefit of beneficiaries, it does not hold such property as the owner or possess as owner envisaged under the Act. In our considered view, no bank holds trust properties as owner envisaged under section 19 of the Act or possess vacant land as envisaged under section 19 of the Act. Thus, a bank even though regarded under Trusts Act as the owner of trust property vacant land for the purpose of executing or administering a trust, it cannot hold a trust propertyvacant land as its owner or possessed as owner as could make that land eligible for the benefit of exemption envisaged under section 19 of the Act. . . Applying the aforesaid ratio, though the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of person on whose behalf or for whose benefit income is received or receivable by the representative assessee, shall not prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income. 6.6 Under section 61 of the Act all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to Income-tax as the income of the transferor and shall be included in his total income . Section 62 of the Act provides that if a transfer is irrevocable for a specified period than section 61 will not apply. Section 63 defines as to what is transfer and revocable transfer for the purposes of sections 60, 61 and 62 of the Act. It provides that : (a) a transfer shall be deemed to be revocable if- (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets ; (b) transfer includes any sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessed apart from and without a reference to the provisions of that section. Section 21(4) of the 1957 Act is analogous to section 164 of the 1961 Act. Analysing section 21(1) and 21(4), the Supreme Court observed that the provisions of the Act are similar to those of the Act. Hence, by a parity of reasoning, whenever an assessment is made on trustees under the Act, section 161(1) is necessarily attracted. In other words, under section 161 the tax shall be levied upon and recovered from a trustee in a like manner and to the same extent as it would be leviable and recoverable from the person represented by him. Thus, income which comes to the share of a beneficiary has to be assessed as if it were the income of the beneficiary, and tax has to be levied accordingly: 6.10 The High Court of Bombay in CIT v. Marsons Beneficiary Trust [1991] 188 ITR 224 (Bombay) concluded that- In the applications which are before us, the shares of the beneficiaries in the trust income are known and determinate. There can, therefore, be no question of section 164 being attracted. Looking to section 161 (1) and the decisions of our High Court and the Supreme Court, the income of the trust, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : the consequences of the provisions in section 21(1) of the Wealth-tax Act is that the trustee is assessable in the like manner and to the same extent as the beneficiaries. In the first place, there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly. It was also held that no part of the corpus of the trust properties can be assessed in the hands of the trustee. In view of the above, the reason stated by the Assessing Officer that the beneficiaries are not the owners of the building cannot be sustained. Hence, by applying the dictum laid down by this court in Thiruvenkata Reddiar s case [1981] 128 ITR 689 and by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which is to be made on the trustee. The Authority for Advance Rulings in Advance Ruling P. No. 10 of 1996, In re [1997] 224 ITR 473 considered the scope of section 161(1A) of the Act and observed at page 541 thus, It is true that section 161(1A) provides for a tax at the maximum rate on the income from business in the hands of a trust. To the same effect is the observation made at page 510 under exception (a). Thus by virtue of the provisions of section 161(1) of the Act income from property received by the trust cannot but be treated as income from property in the representative assessment which has to be made on the trustee. This is so, notwithstanding the fact that the trust in which the appellant is a beneficiary is having income from profits and gains of business. In the case of a trust which is having income from business as well as income from house property, by virtue of the provisions of section 161(1A) of the Act, the income from the business earned by the trust shall be taxed at the maximum marginal rate treating it as a single unit and the income from house property has to be assessed in the hands of the trustee in the manner provided in section 161(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequently computation of the income from house property has to be made under sections 22 to 25 of the Act since the Tribunal had entered a categorical finding that the shares of the beneficiaries are definite. As already noted, as per sub-section (1A), where any income in respect of which a representative assessee is liable consists of, or includes, income by way of profits or gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum rate. The income so liable referred to in the said sub-section is only the business income of the trust and not any other income. It is only the income by way of profits and gains of business that can be charged at the maximum marginal rate. Any other interpretation, according to us, is against the very scheme of the Act and further such an interpretation will make the provisions of sub-section (1A) of section 161 unconstitutional. It is a well settled position that if two constructions of a statute are possible, one of which would make it intra vires and the other ultra vires, the court must lean to that construction which would make the operation of the section intra vires (Johri M ..... 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